Economics 101 – 2 of 8 – Money and Prices – Murray N Rothbard

2. Money and Prices

Many believe that if governments would just issue greater quantities of money then all problems would be solved. In truth that would create unsurmountable problems by lowering the purchasing power of each money unit. Money is the one good that is not made better by increasing its supply.

Rothbard discusses how money originates. Products are originally merely exchanged between people. This is the barter system and it is based upon the double coincidence of wants. Very shortly, one or two commodities like wheat or tobacco emerge on the market as more marketable than others. Money is now a medium of exchange. Calculations and the process of accounting become possible when there is money. Gold and silver emerged over years as the best money. Metals were exchanged in measures of weight, like grams. The slippery slope was created when, instead of weights, names were used for money like francs or dollars.

The second of eight sessions from Murray Rothbard’s Economics 101 series.

A collection of eight speeches and lectures by Murray N. Rothbard, spanning from the 1970s to the early 1990s. He is speaking in a small classroom setting, explaining economics from the ground up, and systematically in the manner of a classic 101 course on the topic—but with a revolutionary approach.

00:00
well the note S has been written on many
00:01
areas of economics by for more nonsense
00:03
has been written on topic of money than
00:05
any other area every guy with a pen and
00:08
ink a high priority and or a typewriter
00:10
feels a boy to come Howell attract out
00:14
money most of the pure junk in most
00:16
cases the people write on money usually
00:19
known as money cranks and one way or the
00:21
other come up with inclusion of the
00:22
what’s needed to solve all the problems
00:24
of the world is for the government or
00:25
somebody else to issue unlimited amounts
00:27
of money and when this happens old
00:29
problems would be solved everybody have
00:31
money and be able to spend it one of the
00:33
problems is in order refute the money
00:34
crank was real with decision you have to
00:36
take a position finally which is really
00:38
the opposite the other pole opposite of
00:40
money crank ISM which most economist
00:42
other people don’t go far enough to take
00:44
the definitions of money usually plus a
00:46
pretty weak the worst example I know of
00:48
Chamber of Commerce the United States
00:50
came out with a textbook in economics
00:52
about twenty years ago and a series of
00:54
pamphlets and chapters I came in the
00:57
money chapter this is really a person a
00:59
usually bad definition but I think it’s
01:00
really impressive in the analysis of
01:02
most economists these days fine money as
01:05
quote money is whatever the government
01:07
says it is unquote that was the whole
01:09
definition money is a pretty bad example
01:12
but it’s though I think captures the
01:14
spirit in order to really understand
01:15
what money is all about specifies are
01:17
you also say the start analysis
01:19
so-called macroeconomic area is built up
01:22
out of the microeconomic area in most
01:24
textbooks you deal with a micro feel
01:26
you’re talking about supply and demand
01:28
individual action prices that sort of
01:30
stuff that’s something you’re in the
01:31
micro field you’re talking about
01:32
something completely different talking
01:33
about all sorts of equations and banks
01:35
and so forth and there’s no relationship
01:37
between was this sort of fairly
01:39
clear-cut supplying am an analysis in
01:41
the one hand and the sort of all the
01:42
stuff going on out there the macro feel
01:44
on the other we’re going to talk we to
01:46
tie it in I know to really understand
01:49
what money is all about you can’t start
01:51
all for the current 1974 you have to
01:54
start off with how money originates
01:55
to capture the essence of what it’s all
01:57
about we go back now not exactly to
01:59
Crusoe but who some twenty years later
02:01
with half a dozen people or saw insan’
02:03
little village are using a special as I
02:06
send division of labor all the things
02:07
we’ve been talking about
02:08
and one guy’s producing eggs other guys
02:10
reducing wheat their guys making shoes
02:11
and so forth and so on
02:12
rudimentary specialization vision of
02:15
labor in each one exchanges the surplus
02:18
of his product with a circle a lot of
02:20
people’s products everybody benefits
02:21
from the exchange and so forth and so on
02:23
you can even talk in terms of demand
02:24
curves and supply curve money hasn’t
02:27
popped up yet in other words so far the
02:28
god the egg producer changes some of his
02:30
eggs for somebody else’s week and lead
02:32
producer does likewise the other
02:34
direction and the expertise er exchanges
02:36
some of his eggs for some of the first
02:37
pair of shoes and so what you have then
02:39
is what’s known as barter or direct
02:42
exchange in which everything exchanged
02:43
between two people directly benefits
02:45
each person’s you get the eggs you eat
02:47
them or you get the shoes and you wear
02:49
them and so forth so every term in
02:51
equation so to speak is a directly
02:53
useful product so so far money has
02:56
originated in barter there’s certain
02:58
difficulties which pop off very quickly
03:00
in the game as soon as you get beyond
03:01
Cousteau on Friday and get the few
03:03
people in the village run into some
03:05
problems and trying to work out a system
03:08
of border well to apply to a modern
03:11
context I’m going out in front of my
03:13
newspaper there’s no money so in order
03:15
for me to buy a newspaper I have to find
03:17
a new dealer
03:18
but once let’s say five minutes we
03:20
quickly get out my construction and we
03:22
bought of this thing we have a little
03:23
little go around here 30 seconds of
03:25
makes I’m off of a paper now obviously
03:28
it’s been very very difficult I’m going
03:31
to start so that’s pretty quickly I find
03:32
a grocer I want some economic
03:33
instruction and sometimes don’t want you
03:35
know even of the primitive village but a
03:37
few makers allergic to eggs he was one
03:38
of the eggs what’s the egg deal gonna do
03:40
if he wants a pair of shoes or he wants
03:41
his choose a pair he’s in trouble right
03:43
away you start off in trouble for the
03:46
very beginning and you’re gonna get too
03:47
far obviously you can’t build up any
03:49
kind of modern economic system that way
03:51
because for one thing closing you’re a
03:53
steel manufacturer what do you do with
03:54
your steel bars you have to go around a
03:57
fine if you want to change it for food
03:58
you have to get a steel bar and try to
04:00
find grosser like a steel bar it’s not
04:02
too easy to kind of play either you have
04:05
the problems I used to be known in the
04:06
textbooks as a double coincidence of
04:08
once otherwise you have a problem trying
04:09
to find somebody who wants what you want
04:12
and also as what you want to have it’s
04:13
not that easy another problem with this
04:16
is the problem into visibilities in
04:18
other words I’m going to tractor let’s
04:20
say I want to solve a tractor
04:21
I want to saw an exchange it for other
04:23
things 20 different things outside all
04:26
right I have to find a grocer I want the
04:27
whole tractor I can’t chop up the
04:28
tractor the 20 parts so once you start
04:31
chopping up the tractor loses value so
04:33
here the problem in the visibility
04:34
chicken nobody wants a tractor
04:36
you can’t chop up a tracker by port you
04:39
have problems with any large thing and
04:42
trying to divide it apart and use that
04:44
for border there’s also another problem
04:46
should be very severe and world of
04:49
barter there’s no way to really
04:50
calculate if your business firm there’s
04:53
no way to calculate when your income is
04:54
what your expenditures are no way to
04:56
calculate whether you’re engaging a
04:57
profitable business whether you’re
04:58
running a low loss or a profit cuz you
05:01
have to say let’s say I took in during
05:02
the month so the following thing is 20
05:04
kegs of nails 30 dozen eggs you asked
05:07
about 50 different things and you age
05:09
solo lat and you’re paying out 20 kegs
05:12
of this and five feet of lumber and
05:13
there’s no way there’s no common
05:15
denominator but what you can measure
05:16
these things or ask them make them you
05:18
don’t know what the heck’s going on no
05:19
accounting system can work under border
05:22
then one price for an ApS if a farmer
05:25
wants know what the price of eggs is you
05:27
have to tell them volunteer price of
05:28
eggs as follows one loaf of bread two
05:30
pounds of butter 1/10 of a half and so
05:33
forth sewing oh then the whole list
05:34
hundreds of thousands of different
05:35
things and so you never know what any
05:37
prices it’s all complete state of
05:39
confusion so no real market of any size
05:41
or any complexity can develop under
05:43
border ok so you have this world of
05:45
border it’s a world of struggling to
05:47
develop but obviously getting nowhere
05:49
fast let’s go back to the egg dealer and
05:52
there’s the guys in the village as a
05:54
wheat farmer an egg dealer and a
05:56
shoemaker and the two megaohms to be
05:58
allergic to eggs the egg doesn’t choose
06:00
a fully impart the egg man gets a
06:03
brilliant idea goes to the week former
06:05
that finds out alley farmers not
06:06
allergic to eggs exchanges his eggs for
06:08
the week he takes the week and he
06:11
doesn’t want the wait see there’s a
06:12
first time in history of the world so to
06:14
speak in this model well though guy buys
06:16
wheat not because he wants me he might
06:17
be allergic to bread he’s buying a week
06:19
not because he wants it for himself or
06:21
to eat it or whatever but in order to
06:23
exchange it
06:24
for the shoes because he knows that the
06:25
shoemaker shoemaker will buy wheat so we
06:28
have for the first time than an indirect
06:29
exchange or an exchange with a medium in
06:31
other words buying something not because
06:33
you want it as you’re doing the barter
06:34
but because you know somebody else will
06:36
want it and by doing this you’re able
06:39
now to expand your scope you don’t have
06:41
to look for a non-allergic shoemaker you
06:43
can have financial maker who wants bread
06:45
which is easier to say easier to find so
06:48
you begin to arrive at a situation where
06:50
valuable commodities begin to be
06:51
purchased not just for their own direct
06:54
use but because somebody else wants in
06:55
other words they’re particularly
06:56
marketable and you know that somebody
06:58
else wants to buy them in order to
06:59
resell them to somebody third person
07:01
commodity functions is what’s known as a
07:03
medium of exchange this is a case of
07:05
indirect exchange as opposed to direct
07:07
exchange because what happens is a
07:09
certain product let’s case wheat there’s
07:11
now being demanded not just for itself
07:12
but also as a medium this raises the
07:15
demand curve for the product once
07:17
something begins to be used in any
07:18
society as a medium of exchange against
07:21
the Snowbowl because when somebody finds
07:23
out hey that using we as a mediator
07:25
exchange in northwestern in Brooklyn
07:27
then anybody is dealing with
07:28
Northwestern Brooklyn will buy wheat and
07:29
we’ll have sort of confidence in the in
07:31
this fact that he can get rid of the
07:33
weak because people in northwestern
07:34
Brooklyn using it as a medium this
07:36
encourages people who are have dealings
07:38
with northwestern Brooklyn and start
07:39
buying leek themselves and it has a
07:40
snowballing effect the more people use
07:42
it more people find out about other
07:43
people using it and this very shortly
07:45
one or two commodities begin to spiral
07:48
upward and being to be used as a medium
07:50
for all exchanges or virtually lunch
07:52
changes in the society when you get to
07:55
that point and you get to one commodity
07:57
or two commodities which are being used
07:59
as a medium for all exchanges this is
08:01
called a general medium of exchange and
08:03
this is the definition of money the
08:05
money is a commodity which is use or a
08:08
thing which is being used as a general
08:09
medium for exchanges and once you have a
08:11
situation where you have a general
08:13
meeting of exchange but money has been
08:15
established on the market not because
08:17
the government is coming and so I think
08:18
will make
08:19
cowrie shells money or I think will make
08:21
wheat money or something like that money
08:23
emerges on the market it always has
08:25
emerge on the market as this sort of
08:27
process as a fact that people on the
08:29
market see that certain commodities are
08:31
more marketable others they start using
08:32
a media they find us expand their
08:35
almost pretty soon you wind up with us
08:37
in the market process with one or two
08:39
commodities as a general medium exchange
08:41
once a commodity has been established as
08:43
money all sorts of goodies flow from it
08:45
enormous economic benefits flow from
08:47
this fact take gold was established as
08:50
money now you don’t have to worry if
08:51
you’re an economics professor I don’t
08:53
have to worry about let’s see what what
08:55
does that grocer want an exchange you
08:57
have to worry about that everybody wants
08:58
money and so all we have to do is to
08:59
sell whatever you have services for
09:01
money instead of having a double
09:02
coincidence of wants all unity is one
09:04
guy wanting one thing we needed somebody
09:06
warning eggs or somebody warning
09:08
economics education or whatever and
09:10
money then becomes the other term for
09:12
every exchange
09:13
second of all the result of this is that
09:16
in the visibility’s now a wiped out when
09:19
the visibility is no longer a problem
09:20
since money is the visible it’s off you
09:23
want to get rid of your tracker and
09:24
exchange it for a couple of cows and so
09:26
on and so on a whole bunch of other
09:27
thing you can sell a tracker for the
09:29
money commodity take the money and
09:31
divide it up in the different small
09:32
parts exchange these parts for my fine
09:35
sets we do using what ever since money
09:38
is divisible and everybody wants it
09:39
everybody will take an exchange there’s
09:41
no problem then with trying to figure
09:43
out what the elegant I want worrying
09:44
about the indivisible product all these
09:46
problems are solved a third problem is
09:49
the problem of economic calculation
09:51
economic calculation is knowing
09:52
simplifies it’s made possible by the
09:54
existence of money does the business
09:56
firm of a person can say what’s my
09:58
income for last month my income is X
10:00
amount of dollars or X amount of gold
10:01
grams paid out someone’s how many go
10:04
grams therefore my profit is
10:05
such-and-such show my bosses or such as
10:07
such there’s all calculations now to
10:09
take place in the money commodity is
10:11
enormous simplification for the whole
10:12
thing whole process of accounting the
10:14
whole process of figuring out whether
10:16
you’re making profits or suffering
10:17
losses now becomes possible there’s not
10:19
money as an incomparable benefit to
10:21
society it’s the most important single
10:23
invention rather than fire all rest of
10:25
it it came about for thought because one
10:27
single person is vented it because
10:29
natural unquote quote-unquote market
10:32
processes no one person sat down and
10:34
said hey I think I’ll have something
10:36
called money and establish it all so
10:38
what happens is that this goes along
10:40
with the ease of economic calculation if
10:42
you want to know what the price of eggs
10:43
is instead of having to say let’s see it
10:44
price of eggs is one
10:45
for Brad or have found a butter at such
10:47
a sucker go down the list there’s only
10:48
one price for everything at the money
10:50
price whatever the price ruling prices
10:52
and money so the price of loaf of bread
10:54
is whatever 75 cents and that’s it
10:56
okay so we see these enormous advantages
10:59
or benefits for money then the question
11:01
arises what good will it be established
11:04
the market has money what we usually
11:05
emerge on the market is money well
11:07
usually it’s the best money a bold
11:08
product less money there’s that term
11:12
good a whole bunch of different types of
11:14
commodities have been used as money’s in
11:16
the past soul tobacco cattle the
11:20
southern colonies in America the 17th
11:21
centuries and 18th centuries tobacco is
11:24
used as money back of a major product
11:25
and business accounts for kept in terms
11:27
of hogsheads of tobacco a great one of
11:30
the probably the most single
11:31
anthologized article in economics is
11:33
very excellent article by an English
11:35
economist so happened to be in a German
11:37
prisoner of war camp in World War two
11:38
and he after the war he wrote an article
11:40
called economics in prison war camp and
11:43
he says what happened they were supposed
11:44
to the large community the only supplies
11:46
coming in or essentially care packages
11:48
things like that what happens is that
11:50
money begins to emerge a money the
11:52
instantly murder obviously there’s no
11:53
cash that sort of system and the money
11:54
that immersion in the POWs cancer
11:56
cigarettes and even have a situation
11:59
where everything was priced in terms of
12:00
cigarettes a market developed British
12:02
officer would post on the board
12:03
periodically what the price of you can
12:05
of anchovies treat packs can of
12:07
so-and-so unpack etcetera ceteris
12:09
everything you have its price the whole
12:10
price system devolve is a beautiful
12:12
example of the market in action you know
12:14
some enterprising speculators are do
12:16
they buy up something at the care
12:18
package let’s say we’re coming the first
12:19
of a month so during the first week
12:21
prices would tend to be lower than the
12:22
last week because supplies that they
12:24
eaten up by the end of the month so
12:25
under priming speculators would buy
12:27
those and stuff when it’s cheap said it
12:28
can then show visa never hold it off the
12:30
market until the last week and then
12:32
solid that’s taking advantage of the
12:34
higher price nearby smoothing out the
12:35
price fluctuations and shifting the
12:37
supply the commodities allocating the
12:39
weather consumers are most needed or was
12:41
the last week so all these things began
12:43
to emerge and sure enough another thing
12:45
the emerge is also inflation because
12:46
sometimes more cigarettes are start
12:48
pouring in and then the prices would go
12:49
up
12:50
and then sure enough wouldn’t wouldn’t
12:52
you know they decided finally other
12:54
British officers assigned to impose
12:56
price control because inflation POWs
13:00
camps they impose price control and is
13:01
immediately the shortage of the lot
13:03
where’s the cigarette I can’t find the
13:06
other commodity there’s a blank market
13:07
available and show me what and finally
13:13
and finally they just throw up their
13:15
hands then they says the heck whether
13:16
the price controls won’t work on the
13:18
Eliminator of course the shortages so
13:19
just shortages immediately disappeared
13:21
it’s a beautiful microcosmic example of
13:23
the current situation past present and
13:26
future that matter anyway cigarettes
13:29
were the best money around there and a
13:30
half course in the absolute sense some
13:32
disadvantages first bite they crumble
13:34
easily so make the wrong move on the
13:36
hold of cigarettes your money goes goes
13:38
down the chute so cigarettes got stale
13:41
and stale cigarettes with this kind of
13:42
this kind of cigarettes and we’re very
13:45
durable and so forth and also there
13:47
existed an abundant quantity so it’s
13:48
more cigarettes poured in by
13:50
well-meaning friends of those of the
13:51
prisoners with Dennis of course
13:53
inflation rate but is the best money
13:54
they had over the centuries if enough
13:57
stuff is available and so you don’t have
13:59
to make do with cigarettes or hogsheads
14:01
of tobacco to metals have emerged on the
14:04
market over thousands of years
14:06
time-tested of emerge on the market of
14:08
the best money’s all the great money is
14:10
qualities needed namely gold and silver
14:14
gold for particularly since gold is
14:15
scarce and silver gold is usually used
14:17
for larger transactions and silver for
14:19
smaller transactions the two can really
14:22
continue side-by-side here the old money
14:25
in banking textbooks he’s have a great
14:26
chapter the ending of the question which
14:28
is the commodities make the best money
14:30
which are the money is quality course
14:32
that’s what about that now because they
14:33
don’t come out of the money anymore
14:34
okay money which does exist has
14:36
obviously so bad relation any money is
14:38
qualities it’s best not to talk about it
14:40
in other words paper and government fiat
14:43
bank accounts about the last thing that
14:45
the market would choose is money but one
14:47
of them great money is qualities well
14:48
first place it should be very marketable
14:50
it should be something great demand
14:51
which before you even begins as money
14:53
and these things that you’re picked on
14:55
the society is usually great demand the
14:57
cowrie shells bagman gold and silver is
14:59
always on great demands or
15:00
but start off with sort of a firm basis
15:03
original non money form also it should
15:05
be divisible it should be a commodity
15:07
which you can chop up into small pieces
15:08
I lose the whole value gold and silver
15:10
are two remarkable qualities as metals
15:12
that you can technique and slice in at
15:14
the very small pieces and doesn’t compel
15:16
apart doesn’t lose their value
15:17
they’re probably divisible also there
15:19
should be a high value per unit quantity
15:21
cigarettes is unfortunately a low value
15:23
per unit quantity each cigarette doesn’t
15:25
is worth much so if you needed something
15:27
that has a high value per unit quantity
15:29
which will therefore also be portable
15:30
easily sit on it but one guitar amp you
15:32
have to lug cattle or I can’t eleven
15:34
uses money African tribes per turbine
15:37
society it sort of plan and echo the
15:39
drive cattle around if you want to buy
15:41
something so it should have a high value
15:43
per unit quantity it should be also
15:46
durable it should be able to sock it
15:47
away in a mattress or something pull it
15:49
out fifty years later so it should be
15:51
very durable which gold silver or gold
15:53
and silver also or the visible have a
15:55
high value per unit quantity also should
15:57
be something it’s easily recognizable
15:58
difficult the counterfeit goal is also
16:00
that way the average person can easily
16:01
tell these used to telling the old gold
16:03
days it will tell quite quickly whether
16:05
it’s really gold or not yes by getting
16:07
your you can bring it on the table etc
16:09
drop it quickly so for all these reasons
16:11
gold and silver emerged for very early
16:13
in the game as the best money’s and also
16:16
as well see later at one of its great
16:17
qualities of gold and silver is the best
16:19
money it’s not definitely don’t have a
16:20
ground it’s not subject to government
16:22
turning on the printing presses the
16:24
market chooses gold and silver for these
16:25
reasons free market economists tend to
16:27
choose it for those plus the fact that
16:29
there you can get them outside of
16:30
government can be supplied outside of
16:32
government by at as an extra reason and
16:34
those are really the reasons why gold
16:36
standard types are favored the gold
16:37
strata not because they loved it them on
16:39
their hands through gold coin not only
16:41
this the model of what way money has
16:43
originated as a free market money well
16:46
during von mises showed sixty years ago
16:48
and now that this is the only way the
16:49
money can originate money cannot
16:51
originate
16:52
either by a social contract everybody
16:54
getting around and one big assembly and
16:56
saying hey I think we need some money
16:57
and somebody saying okay let’s use
16:59
dingbats or whatever
17:01
cannot originate my government fine well
17:03
the King says we will now make Michelle
17:05
gonna make that money can’t work that
17:07
way
17:08
this has been shown by me to this
17:09
football regression theorem which solves
17:11
a lot of very important theoretical
17:12
problems of the Austrian school marginal
17:15
utility school faced the turn of the
17:17
century basically the problem is this
17:19
you can see why the demand for a rate
17:20
for anything demand for eggs demand for
17:23
hula hoops or whatever it will be
17:24
determined by the marginal utility of
17:26
the consumers have for these things in
17:27
their value scale the marginal utility
17:29
of hula hoops determined the man for
17:31
hula hoops at cetera point about money
17:33
is a peculiar thing about money you’re
17:35
using money in exchange you’re buying
17:36
money so to speak you’re sewing your
17:38
goods and services for money not because
17:39
you want to use it directly but because
17:41
you want to change it for something else
17:43
so therefore the demand for money itself
17:45
the very factor you’re demanding money
17:47
in your value sched in other words you
17:48
have a marginal utility for money
17:50
there’s not been applied a monetary
17:51
theory since either before Mises or
17:53
since the reason why you have a margin
17:55
utility for money is because precisely
17:56
because you have a pre-existing prices
17:58
in terms of money money has a
18:00
pre-existing purchasing power they have
18:02
a problem when posed idli circular
18:03
reasoning in here in other words the
18:05
problem for explaining the price of
18:06
money demand for money in terms of
18:08
marginal utility is that you can see you
18:10
can have more utility for exit as you
18:11
like to eat it but you’ve got presuming
18:13
a previous price but it comes to money
18:15
the very fact that you have a margin
18:17
utility for it presumes or assumes a
18:19
proceeding price for it preceding price
18:21
level and quotes so how do you get out
18:23
of us what you speak all the Austrian
18:25
circle owe me this is the one who solved
18:27
this by saying as follows yes it’s true
18:29
there’s a time element in the demand for
18:31
money which doesn’t exist in the net for
18:32
other thing say the marginal utility of
18:34
money and day X is in some way a
18:37
function of or dependent on the price
18:39
level on the purchasing power of money
18:40
and the day X minus one previous day
18:44
however he said if you push this back
18:45
keep pushing us back logically in time
18:47
you’ll finally arrive at the first day
18:50
but then when gold was first used as
18:52
money in logical sense
18:54
previously had been only in border and
18:56
you’ll back beyond that the last day we
18:58
always only uses barter then you have a
19:00
situation where a goal is demanded only
19:02
for its own sake and only for its
19:04
ornament whatever and the marginal
19:06
utility of gold at that point well have
19:08
no time component at all so the demand
19:10
for gold the day before you its uses
19:13
money is truly the consequence of the
19:15
margin till you go on that day and
19:17
doors he’s not using it as a medium of
19:19
exchange then there’s this time
19:21
component in it they say well it’s
19:22
dependent on the fact you have a
19:23
previous price for it which means that
19:26
no money can ever originate unless it’s
19:28
originally was non monetary loan
19:31
monetary use no you know we’d have to
19:34
have a starting point where it was used
19:36
or as valuable and had a price on the
19:38
market which was a non-monetary price
19:40
ergo all monies have to emerge as
19:43
originally a useful commodity non
19:44
monetary commodity buy gold or silver
19:46
further you know you can kick goal in
19:48
silver agus I think instill function of
19:50
money afterward keep on and definitely
19:52
on momentum but as far as originating
19:55
money you have to begin with a
19:56
non-monetary useful commodity okay we
19:58
have gold and silver establish a say has
20:00
to be established on the market what’s
20:02
the currency unit but but unit you keep
20:04
the account in you’re talking about
20:05
income and expenditure well metals are
20:08
always exchange in terms of weight units
20:10
of weight you’re talking about tons of
20:12
iron or pounds of copper or whatever
20:15
therefore the monetary unit will be unit
20:18
weight of gold or silver let’s say if
20:21
you take goal is the money and I case
20:23
the gold gram or the gold ounce will be
20:25
the monetary unit but anytime a
20:27
calculations income expenditure or
20:29
prices all these will take place in
20:31
terms of the goal gram of the gold ounce
20:33
the unit of weight of gold becomes the
20:36
currency unit once again there’s no
20:38
example in history where any monetary
20:39
unit has emerged except as originally a
20:41
unit of weight of gold or silver or some
20:43
other commodity the dollar for example
20:45
began as a thick sixteenth century
20:48
Bavaria somewhere around in that area as
20:50
a count of along comes tall doing those
20:53
days a nobleman offering issue their own
20:55
coins and the counter via welcomes tall
20:58
issued a coin which has had a year the
21:00
name of the kind of slick conflict of
21:03
you know welcomes the issue these coins
21:05
are sure had great circulate over Europe
21:07
because they were pretty and they had
21:08
they they lasted a long time it looked
21:10
good and cold
21:11
you’re welcome installers or slick than
21:13
callers there I think an ounce weight of
21:16
silver came a famous coin and she took
21:18
them in your walk installers and pretty
21:20
soon as people do they abbreviate lopped
21:22
off the flicked in any walkin it was
21:24
just cold tolerant becomes transmogrify
21:27
as the dollars later on and a pound
21:29
sterling
21:30
the British currency intercourse
21:31
originally meant that I met a pound of
21:33
silver well that’s what it was a pound
21:35
sterling was a pound of silver now of
21:36
course a heck of a lot less than a pound
21:39
of so so currency you know is originally
21:42
a a weight of gold and silver one of the
21:45
first pieces of evil which was injected
21:47
in the monetary system was beginning to
21:49
use names instead of weights of a
21:51
special name once that happen at the
21:52
beginning of the end the first step on a
21:54
slippery slope down with current
21:56
accelerated runaway inflation was the
21:58
first time Willie King started talking
22:00
about gold Lance why should talk about
22:01
the that’s the King’s name is Edward
22:03
won’t you talk about the Edward it’s
22:04
classier than talking about the gold
22:05
Lance all right define the Edward as
22:07
being one goal ounce you have an Edward
22:09
coin instead of a gold ounce coin then
22:11
you begin the slippage in the Perdition
22:13
during a late 19th century when most
22:15
nations are on the gold standard there
22:17
were several international monetary
22:18
conferences these are not like the
22:19
current international monetary
22:20
constantly people sit around trying to
22:22
figure out how to claim or how to shaft
22:24
the public those are real international
22:25
monetary conference so the idea was why
22:27
can’t we take all these names that are
22:28
popped up all of which were defined in
22:30
terms of units of weight of gold and why
22:32
don’t we put them on one scale first
22:33
most of them were sort of multiples of
22:35
each other the pound sterling was almost
22:37
$5 there’s a little bit license why
22:39
don’t we make it fine AAG change it a
22:41
little better then we can proceed on the
22:42
next step after making it each one of
22:44
multiple of the other
22:44
so Bosch the dollar and panel together
22:47
just make them weights of gold we’ll
22:48
have one world gold unit and that was
22:51
the objective of most these guys late
22:53
19th century they’re always a fair
22:54
Liberals they’re all hard money types
22:56
but they founded on the whole silver
22:58
question right as a parent the point is
23:00
the relationship with Nicole and silver
23:01
and whether it should be fixed or not
23:02
better on that these questions by the
23:04
time they that got straighten that the
23:06
world was off the gold standard is at
23:08
the end of that so the first step was
23:11
naming the thing a name instead of a bit
23:12
of a weight the dollar later became when
23:14
the United States was founded the dollar
23:16
was defined as 1 proximately one
23:17
twentieth of a gold ounce was also fixed
23:19
in terms of silver which is unfortunate
23:21
it’s now approximately 140 second of
23:23
gold lamps but even now it’s the
23:25
official definition of dollars one forty
23:26
second ago and that’s what a dollar is
23:28
well dollar is not just a dollar not
23:30
just a piece of paper printed by the
23:33
government it’s supposed to be at least
23:34
officially it’s supposed to be 142nd of
23:36
the gold lamp kind of this chain very
23:37
early in the game the government the
23:39
Kings and so forth established
23:40
themselves as the guard
23:41
the nation’s weights and measures course
23:44
the big thing have to have a government
23:45
to make sure the yard is always ER do
23:47
you have the metric yard or whatever it
23:48
is somewhere and some under glass
23:50
that’s the yard all other things was the
23:52
replicas pair reflections of this of a
23:55
pure form of the yard and you have the
23:57
pound sitting there somewhere I mean the
23:59
government’s was meeting Olga’s guardian
24:00
unless you always make sure that you
24:02
never never change and juggle these new
24:04
standards oh why the whole economic
24:05
system everybody messed up as part of
24:07
this guardianship of weights and
24:09
measures is also guarding the weight
24:10
gold and silver
24:11
press the first place as to nobody is
24:14
real interests really it’s a jungle
24:15
yards and feet the government issued a
24:17
decree saying okay from now on your is
24:19
no longer three feet two and a half feet
24:21
a foot is going over twelve inches now
24:23
all of it is obviously pretty absurd I
24:25
could be pretty kooky even for the
24:26
government to do something like that so
24:28
nobody’s real advantage to do this you
24:29
have the fixed but in the fix yarder
24:31
they’re forever more than meet here and
24:32
so forth but case of money you don’t
24:34
have this question in the case of money
24:36
have the economic vested interest of a
24:37
compulsory monopoly guardian of the
24:39
purity of the money to start juggling or
24:41
the definition first the government
24:42
started by establishing the post free
24:44
monopoly of the mint lint function
24:46
usually go for example exchange by
24:49
weight of a pound of gold an ounce of
24:50
gold cetera then after a while they
24:52
discover a certain form certain types of
24:54
gold or inconvenient example gold dust I
24:56
used to be back in an old California
24:58
gold strike days people walk around
24:59
Goldust remember the western movies the
25:02
old prospector comes in with a bag of
25:04
gold dust and pumps it down exchanges it
25:06
for the general store and they weigh it
25:08
you can do that but it’s kind of
25:10
inconvenient first of all the gold dust
25:11
begin to evaporate you walk around on a
25:12
cloud of gold dust and your money is
25:14
disappearing very rapidly so you want to
25:17
have it sort of a hard form over the
25:19
centuries the two most convenient forms
25:20
are billion or bars and coins the coins
25:23
for smaller transaction when you
25:24
transform a billion it’s a coin it’s a
25:26
certain amount of cost involved then
25:27
usually a coin will then be at a premium
25:29
in relation to the billion the Kings saw
25:31
a good thing here I think the king is
25:34
very early
25:34
established the the view that a
25:37
compulsory monopoly of a mint with
25:38
essentially the sovereignty of a king
25:40
that if you don’t do this in the king
25:41
that state is no longer sovereign
25:43
somehow state is weakened irrevocably by
25:45
this by giving up the MS monopoly by
25:47
this philosophy of sovereignty they
25:49
establish the view and only the
25:50
government should be able to mint coins
25:51
by doing this of course that you’re not
25:53
only giving a profitable business
25:55
the government team more than that means
25:57
you can keep anybody else from getting
25:59
in there and therefore you can proceed
26:01
on the base in the coins and juggling
26:03
the standards nobody can do anything
26:05
about it the basement comes in very
26:06
early the first form of the flight early
26:08
forms of inflation before the immoralist
26:10
invention is a paper money and bank
26:11
credit pre 1700 let’s say of inflation
26:15
or the basement of a coin usually works
26:18
something like this a new king is
26:19
crowned any lurani says hey there’s a
26:21
lot of coins here with your my father’s
26:23
picture on it we really need your points
26:25
with my picture on it besides the old
26:26
coins are getting dirty in a contrite
26:28
shabby of getting a worn why don’t you
26:30
all come down a little mint and we’ll
26:32
for nominal fee will exchange it for you
26:36
give you nice new shiny coins everybody
26:38
troops there and usually make a
26:39
compulsory to hasten the process so you
26:41
have a look Edward let’s say the Edward
26:44
is the fine is you know the weight of
26:46
two ounces of gold come in with your 2
26:47
ounce coin you get the two Edwards back
26:50
have you two Edwards ok a threat factor
26:52
you’re not really losing anything you
26:53
know except there’s one slight hitch
26:54
here instead of the Edward being two
26:56
ounces apiece the Edward is now an ounce
26:58
and a half it’s been redefined in other
27:00
words the unit of weight has been
27:02
lowered you getting a much lighter
27:03
weight coin back you have a 2 ounce coin
27:05
you redefine the Edward as one on a half
27:07
ounce my name’s the other half ounce
27:08
well obviously you know what happened
27:10
after Kane keeps it takes all these
27:12
bounces of gold and mints his own coins
27:15
and spends it since on he spends in the
27:17
public is in great shape they got the
27:19
same number of Edwards back a kid even
27:21
better shape to me he has Edward that
27:23
didn’t have before at all as well see
27:25
what happens as a result of all this oh
27:26
you haven’t won more Edwards are on the
27:29
market in relation whatever goods and
27:30
services available a price of everything
27:32
else goes up so that was the earliest
27:35
classic form of inflation before paper
27:37
money was invented before bank credit
27:38
was invented
27:39
there’s coin clipping or D basement
27:41
obviously when private people clip coin
27:42
this is right back the maximum
27:44
punishment of the law of the Senate upon
27:46
their head because that means you’re
27:48
taking the guys coming taking the guys
27:50
with two ounces you’re shaving off a
27:51
tenth of an ounce or something and then
27:54
you’re you collect the shavings together
27:55
you make your own coin it’s obviously
27:56
immoral and evil but when the government
27:58
does it as part of essential part
27:59
attribute of somebody in there for good
28:02
getting back 4.5 then we go back to the
28:04
coin club reinforce then we have the
28:06
gold Alex let’s I establish with the
28:07
currency unit and all coins are in terms
28:10
of gol ounces or go grab this means that
28:13
every coin is your every currency unit
28:16
automatically fix their waste every
28:18
other one we have a big controversy now
28:20
and among economists about fixed
28:22
exchange rates versus fluctuating
28:23
exchange rates the point is there’s no
28:25
such thing as fluctuating exchange Drake
28:26
is there ain’t no exchange rate now let
28:28
me put it this way if you’re exchanging
28:29
a pound of something for a certain
28:33
number of ounces of the same thing
28:34
you’ll actually change one pound of it
28:36
for 16 ounces of it that’s why the
28:38
parent is 16 ounces then if you have one
28:41
coin is let’s say Boston is putting out
28:43
Adams coins which are wait 2 ounces and
28:46
it Texas up nti Houston’s which way one
28:48
ounce and two uses will always exchange
28:50
for 20 mm zeros it’s 2 to 1 that’s what
28:52
the answers are so the so-called
28:54
exchange rate is simply expected by the
28:56
weight of the coin there’s no need for
28:58
anybody to fix it will automatically
29:00
you’d be just 2 for 1 low the economist
29:02
will claim the fixed exchange rate is
29:04
somehow coercive or some kind of status
29:06
miss consume the whole point all point
29:08
is it’s not coercive to have it the fact
29:11
that the two things always in exchange
29:12
for 16 pass ounces for one pan after
29:15
example there are two monies in the
29:16
world if some countries are in gold some
29:18
countries are silver and some are our
29:19
mixture of both which can easily happen
29:21
then gold and silver will be the
29:23
fluctuating change right so where’s the
29:25
value of going like this silver will
29:27
keep fluctuate and license supplying a
29:29
man we’ll get to that another time but
29:31
the only real fluctuation in a truly
29:33
free market situation is only one
29:35
fluctuating exchange rate that’s between
29:36
gold and silver everything else within
29:38
gold will then sober the exchange rates
29:40
are automatically fixed by the
29:42
respective way of the currency units now
29:45
of course if each person in the world
29:47
plans own money for example is not gonna
29:49
be money buy if you fire off bards
29:52
period I just thank you ticket saying 5
29:54
walk parts everybody here this issues
29:56
also their own takers our own name on
29:57
but I’ll be sane direct I guess
29:59
with teens won the 500 flies my exchange
30:01
for one somebody else’s around here but
30:04
of course the point is nobody there
30:06
somebody’s gonna take any of this stuff
30:07
won’t be scrap paper very quickly it was
30:12
not a Herald a useful commodity begin
30:13
with are some anarchists Spooner Tucker
30:16
variety who believe it if once there are
30:18
no government restrictions of the money
30:20
supply everybody be able to print their
30:21
own money ever and to be near vana
30:22
believe because the money supply would
30:24
no longer be artificially restricted by
30:27
the government of course I if everybody
30:29
allowed to put their own money
30:30
everybody could print their own you know
30:32
I put my to two million off bars
30:34
immediately and that’s it I mean I’d be
30:36
a waste of paper nobody would take it
30:37
I’ll be in the personal paper money
30:39
owned so we write quickly emerge as the
30:41
money’s that kind of society and be no
30:44
panacea although be a lot better it is
30:46
now economic system this is what has
30:49
been call my way parallel standards when
30:51
you have a situation you have gold and
30:52
silver both functioning independent
30:54
monies without a fixed rate without a
30:56
government fix rate between them and it
30:58
has all during the Middle Ages only in
30:59
the early modern period gold and silver
31:02
would fluctuate in so for example in
31:04
this in the Italian city-states in
31:06
Florence and Venice aside really just be
31:07
everyday it be just to be different
31:09
fluctuations the merchants would have a
31:10
table weekly book or something to show
31:12
what the gold silver rate is that week
31:15
could be a free market and gold silver
31:18
relationship okay so how does this gold
31:21
alright let’s say is established on the
31:23
market as the money muster only to skip
31:26
between adhan prices well first we get
31:27
to the concept of purchasing power
31:30
ever since camis wrote the general
31:32
theory 1936
31:33
concept of purchasing power complete is
31:35
distorted the Keynesian system
31:38
purchasing power means a total number of
31:39
dollars outside if they’re two million
31:41
dollars out that’s the purchasing power
31:43
of a twenty million out that’s the
31:44
purchasing power this is not the
31:45
original concept purchasing power let’s
31:48
go back for example who with the price
31:50
of eggs under Boyer what’s the
31:52
purchasing power of a dozen eggs well
31:54
it’s the same thing as the price of a
31:55
dozen egg the same thing the price is
31:57
the purchasing power of the same in
31:59
other words the price of something is
32:00
whatever the thing can buy in exchange
32:02
if the price of an egg is let’s say
32:04
twice of a dozen eggs is a dollar
32:06
this means that
32:07
these are the dozen eyes can command an
32:09
exchange exchange for $1
32:11
that’s the purchasing power doesn’t
32:13
hangs on their border every commodity
32:15
has a whole array of different
32:17
purchasing powers or we can say its 14th
32:19
powers a whole array of possible
32:21
alternatives under border let’s say it
32:24
doesn’t actually change for the
32:25
following either a pound of butter or
32:28
1/10 of a hat or two boxes of Wheaties
32:31
or etc psychoanalyst hundreds and
32:33
hundreds of different items all this
32:35
array of either ORS would be the
32:36
purchasing power of Li a dozen eggs when
32:40
money is establish you eliminate all the
32:41
stuff and you just have one price for
32:43
the money price and the money since the
32:45
purchasing power of a dozen eggs is its
32:46
price this money price let’s say $1
32:48
what’s the price of money well the price
32:50
of money or the purchasing power of
32:51
money which is the same thing here
32:54
there’s an array of all the different
32:55
goods that can be bought from money when
32:57
money has been established let’s say if
32:59
gold has been established its money all
33:01
the other things have a money price one
33:03
single price in other words hi-fi’s up
33:05
so one price X’s got one price so points
33:08
so on except money it’s soft tip gold is
33:10
soft goal is still in a state of border
33:12
and like to hit everything else so when
33:15
we talk in terms of the price of gold
33:18
price of an ounce of gold will be st. a
33:21
similar array as we’ve seen on border in
33:23
other words the price of an ounce of
33:24
goal is either ten pounds of butter or
33:28
one tenth of a hi-fi set or except
33:30
receptor you go through this whole array
33:32
of alternatives that is the purchasing
33:34
power of an ounce of gold or a currency
33:37
unit of gold so in other words the
33:39
purchasing power of the dollar in the
33:40
purchasing power one ounce of gold is
33:41
the same thing as the points of goal
33:44
which in turn is the same thing as all
33:46
the alternatives that this particular
33:47
weight of gold to exchange for on the
33:49
market all of this is called a price
33:51
level of the concept of price level
33:52
Commun can be used sometimes as a sort
33:54
of a shorthand Ursaring it’s really a
33:56
fallacious concept because it’s sort of
33:59
employment it as one level one thing
34:01
which can be easily expressing on
34:03
average buts not really an averages as
34:05
an array of specific different prices
34:07
and different commodities rather which
34:09
is dollar or thus gold ounce can finish
34:11
for
34:12
and the relationship between these
34:13
tamales you change over time but just
34:15
like one side one average spice level
34:17
which can then juggle okay so the
34:19
purchasing power of all our won’t be
34:21
this array which is the same thing as
34:23
the price of the dollar
34:24
I mean having coming out what forces
34:26
economic forces determine the purchasing
34:28
power of money or approaching for a
34:30
dollar at any time
34:31
first of all prices on the market ended
34:33
the uniform tended to be uniform in
34:35
other words it’s a price of weenies is
34:37
fifty cents at one store and sixty cents
34:39
another store unless other forces come
34:41
in in other words unless one store has
34:43
control more of their services a better
34:45
they they allow predator they so they
34:47
deliver at night or something like that
34:48
borrowing all that the prices of each
34:51
Khurana will tend to be the same because
34:53
the price of we need fifty cents in one
34:55
store 60 cents next door very few people
34:57
will buy the 60 cent and we the price
34:59
might go up in the 50 Cent’s door and
35:01
down on the 60 cent story Mike have us a
35:03
resolution of thing at 52 cents or
35:04
something like that or was it wouldn’t
35:06
equilibrium the uniform price for any
35:09
given good or service the same thing
35:12
will be true with a purchasing power of
35:14
the dollar a pretty power of gold of
35:16
gold amps the purchasing power of a gold
35:19
Lance will tend to be the same
35:20
throughout its training area it’s a
35:22
world of this trading area and the
35:24
pretty valuable Lance will tend to be
35:26
the same throughout the world of the
35:27
Tennessee toward a uniform which usually
35:29
called price levels even more so than in
35:31
case of specific products the specific
35:34
products that usually produced in one
35:35
place and then transported somewhere and
35:37
then consumed the other place example of
35:39
price of wheat in Kansas will not be the
35:42
same as the price of wheat in New York
35:43
because you have to cover over here I
35:45
have to transport the week in Kansas in
35:47
New York the price of wheat in New York
35:48
will tend to equal the price of wheat in
35:50
Kansas plus the transportation cost to
35:52
carry the week in Kansas to New York the
35:55
case of money however the transportation
35:57
cost really doesn’t enter another
35:58
picture because once the goal is
35:59
produced circulating throughout the
36:01
world since it’s durable it sort of zips
36:03
around so streak and there’s no longer
36:06
the problem of transportation course is
36:07
not really in question so the price
36:11
level is then will tend to be the same
36:13
well a purchasing power of the gold
36:14
ounce will pretend to be the same
36:16
throughout the world
36:17
at the trading area why because while
36:20
it’s fairly simple if for example if the
36:21
purchasing power of goal let’s say is
36:23
higher in France and it is in England
36:26
then gold will tend to be shipped from
36:28
England to France which will attend the
36:30
lower purchasing powers in the two
36:32
countries terms of price levels if the
36:35
price level in terms of goal is higher
36:37
and Francis isn’t England then people
36:41
start start spending money in England
36:43
but pick their goal and going to England
36:44
for it
36:45
why stuff in England not in France
36:47
there’s all kind of lower French prices
36:49
raised English prices until the price
36:52
levels or the arrays and prices are are
36:54
equilibrated so the purchasing power of
36:56
the dough will tend to flow I have
36:58
anything else where you can make most
36:59
money at it or most income that go will
37:02
tend to flowered from those areas where
37:03
it has a lowest purchasing power to the
37:06
areas whereas a highest protein power
37:07
and this will tend to be : bright what
37:10
determines the purchasing power of gold
37:11
essentially will supply money in demand
37:14
for money in other words we apply the
37:15
same analysis really to the price of
37:19
money or the price of the gold allowance
37:21
as we do to the price of anything else
37:22
here this is a difference from the
37:24
ordinary macroeconomics where something
37:25
gets thrown in the peculiar world we’re
37:27
talking about velocities and all that
37:28
stuff and it’s the point in the man
37:30
drops out of the picture altogether this
37:32
point amount really is still in the
37:34
picture
37:34
first let’s talk about the supply of
37:36
money before we even get the right
37:38
complex stuff about such as banking and
37:40
things like that which we’ll get to
37:42
later on what is the supply money
37:44
exactly it’s assumed that it’s money
37:46
that was just gold coins and gold
37:47
bullion
37:48
first things his supply curve of money
37:50
we put the spike over the board it’s
37:52
best to think I’ve known as this forward
37:54
sloping one but is the vertical one
37:55
stock of money in any given moment or
37:58
any given time when his money is very
38:00
durable gold is very durable the annual
38:02
production goals small relation to the
38:04
stock what you’re gonna cue lighted for
38:07
hundreds and hundreds of years there’s
38:09
no real division of labor and goal as
38:11
there isn’t everything else you don’t
38:12
have somebody producing like the raw
38:14
material and something else producing
38:15
let you steal something producing the
38:17
car etc you have everybody only money
38:20
and shifting it around so it’s best to
38:22
think of supply of money as a vertical
38:24
line and a demand for money is it a man
38:27
to hold it then I had to buy it at
38:30
Holman first thing look at about the
38:32
supply money that everybody at any given
38:34
time owns own some money there was no
38:36
such there’s no supply of money which
38:38
isn’t owned by somebody there’s no money
38:40
floating around the empire in somewhere
38:42
all money isn’t somebody’s cash balance
38:44
this brings us to the concept of cash
38:46
balance a cash balance of the amount of
38:48
money stock of money and any given
38:50
person had at any given moment you have
38:52
some money in your wallet you have some
38:53
on your back for us and some of the safe
38:55
deposit box some under the floorboards
38:57
in the individual supply of money this
39:00
individual that has his own stock of
39:02
money which we can call small m to be
39:04
picked by small M the total supply of
39:06
money in the society it will be the
39:08
aggregate of all the individuals box of
39:10
money individual supplies which would be
39:12
big and began as the usual symbol for
39:15
the quantity of money or supply of money
39:17
will simply be the Summer of Love all
39:19
the small ends this ties that
39:22
immediately the macro money analysis we
39:25
talk about supply of money is simply the
39:27
sum of all Mike Grell monies everybody’s
39:29
got a little cash balances so each
39:32
individual has now we get the money
39:35
again you started talking about supply
39:36
and demand usually read about
39:39
circulation the velocity of circulation
39:41
count some of the velocity of
39:42
circulation you sort of think of some
39:44
balls
39:45
zipping around a roulette table
39:46
something a lot way or something like
39:48
that as if it’s a thing of circulating
39:50
by itself if some sort of mechanical
39:51
thing out there just somehow engaged in
39:54
circulation
39:55
kind of the way it is money is only
39:57
sitting somewhere in other words it’s
39:59
always in somebody’s cash balance what
40:00
happens during the change any change
40:02
that takes place using money is one of
40:04
the terms of a change it’s something
40:07
that you’re transferring part of your
40:09
cash balance this thing to somebody
40:10
else’s cash balance and getting
40:13
something else make change for it so the
40:15
money is circulated or rather cash
40:17
balances are transferred to one person
40:19
to another but exciting that little by
40:21
the individual point of transfer the
40:23
money is arresting somebody’s cash
40:25
balance so for example if I’m buy a
40:26
newspaper for fifteen cents
40:28
my ownership overcast fifteen
40:30
since my cash balance at that point is
40:33
drawing now my 15 cents and into the
40:35
cash balance is increased by 15 cents we
40:37
have at that moment of transfer we
40:39
shifted ownership of certain part of my
40:41
cash balance we have this whole cash
40:43
balance of approach them and we’re
40:45
dealing with the money supply and with
40:48
the determination of the so called price
40:50
level the purchasing power and then we
40:53
have a demand for cash balances why
40:55
should Bend by demanded cash growth
40:57
about first of all it has to get money
40:58
in order to buy it in order to use it
41:00
for something else or to spend it so the
41:03
usual process is you produce a good or a
41:05
service you sell it you get money you
41:06
get a cash balance you hold on to it for
41:09
short while moment while or whatever you
41:11
spend some of it on other goods the
41:13
demand for cash balance is how much you
41:15
want to keep if you want to sacrifice
41:17
for it and says of how much you want to
41:19
sell in terms of goods and services for
41:21
cash balance how much you want to hold
41:23
on to it you have the same kind of
41:25
demand it’s a point curve except now in
41:27
vertical terms that we had when we
41:29
talked about the supply curve any given
41:31
moment with vertical have the price of
41:33
the y-axis of the quantity purchased or
41:36
held in the x-axis disappointed money
41:39
would be a vertical line if we pull em
41:41
then we have a demand for money which
41:43
I’m a ham is going to be falling what’s
41:46
the price of money on the y-axis the
41:47
price of money in the y-axis is the same
41:50
thing as it as purchasing power of the
41:53
money unit purchasing power of a gold
41:55
ounce we’re gonna call or the inverse of
41:58
the so called price level it’s easier to
42:00
think in terms of price level it’s one
42:02
over the price level or everything else
42:04
this is we’ve already defined the
42:07
purchasing power of a gold lamp say as
42:09
being the inverse of the price level of
42:12
everything else in terms of goal answers
42:13
this is then the analog the price of
42:16
money is the is the same thing as the
42:17
inverse or one over or prices are all
42:20
other goods and services why I wanted
42:23
the demand curve for cash balances
42:25
falling in the situation well you keep a
42:28
certain amount of money just simply your
42:29
money you’re keeping your wallet as you
42:31
emerge on your day’s activities you want
42:34
to keep a certain amount of money in
42:35
your wallet for various reasons first
42:36
place you know
42:38
the need for spending its emergency
42:41
money you might get hit by a truck you
42:43
might might be raining I want to buy in
42:45
a brawl or something little more you
42:46
want to keep a certain inventory for
42:48
emergencies or uncertainty or whatever
42:50
if the price level is higher but hey the
42:53
price is double tomorrow prices of
42:55
everything W angel Gabriel descended
42:57
double like the old prices your leader
43:00
Gabriel anymore for latter betray yeah
43:03
once it will cost twice as much an
43:05
emergency here get hit by two all these
43:07
things will cost about twice as much
43:08
there for you with me you like to have
43:10
if you can have it twice as much money
43:12
in your wallet twice as much inventory
43:14
in other words if the price of money is
43:16
quite low it’s in other words the dollar
43:18
doesn’t buy much your demand for your
43:20
cash balance is fairly high you’d like
43:22
to have twice as much of three times as
43:24
much just little work so to speak the
43:26
work that your cash balance does for you
43:27
has to be can only be performed if your
43:30
increase the amount of money you keep in
43:32
your wallet
43:32
otherwise meeting uncertainty or
43:35
guaranteeing as to whatever buying stuff
43:37
knowing you have money to buy lunch all
43:39
these things require higher cash balance
43:41
if prices are higher carnivores think if
43:44
prices were low the news maybe I
43:45
finally did something good once for a
43:47
change and cut all prices in half by
43:49
magic they even do the same amount of
43:51
work that your cash balances us for you
43:53
now can be accomplished with half the
43:55
amount of money in wall as you have
43:56
before so in other words if the price of
43:59
money were higher or prices in general
44:01
were lower
44:02
ie then you would need much less in your
44:04
cash balance you link these two or more
44:06
points together what you get is a
44:08
falling demand curve for cash balances
44:10
in other words there’s an inverse
44:12
relationship between a quantity demanded
44:14
to keeping your cash balance and price
44:16
of money okay now we have of the mask of
44:20
money just falling we have a vertical
44:21
supply line of money and I will now cut
44:23
ten at the price of money is determined
44:26
by the intersection point any time of
44:29
day today equilibrium will be
44:30
intersection point the demands for money
44:32
demand for cash balances and the supply
44:34
of cash balance at the intersection will
44:36
return
44:36
what the price of money tends to be in
44:38
any given moment what the price level
44:40
the worst has to be seen analogy is
44:43
perfect between this and the pricing and
44:46
the man of supply and price for
44:47
individual products supposing you are up
44:50
here supposingly price of money is
44:52
higher than the equilibrium up here in
44:54
other words the price level is lower at
44:57
this low price level you have a
44:59
situation where the existing supply of
45:01
money if your main is the same or you
45:02
can’t change the supply money up so
45:03
that’s given a neat time there but not a
45:06
goal and we’re hanging around at that
45:09
low price level people don’t want the
45:10
money in our cash balance prices are low
45:12
and let’s say there’s 2 billion dollars
45:14
worth of gold around people only need
45:16
one point eight billion our cash
45:18
balances the rest of it then the other
45:20
200 million as they spend another 200
45:22
million
45:22
demand curve goes up price goes up price
45:26
level is so low that the gold and silver
45:28
that you’ve got let’s say the goal
45:29
you’ve got is burning a hole in your
45:30
pocket you know splendid the point is
45:32
you see you’re trying to get rid of your
45:34
money in a sense you’re trying to get
45:35
rid of your cash Brown in the aggregate
45:37
you can’t get rid of cash balances
45:38
you’re stuck like a hump so to speak
45:41
hump on your back let’s assign you the
45:42
hole stuck with the existing cash
45:43
balances the total supply of money
45:45
remains fixed unless you take the gold
45:47
and throw it in the river which I know
45:48
may get anybody’s going to do so what
45:50
happens is as you’re naturally trying to
45:52
get rid of your cash balances memory you
45:56
can’t do it well what happens is since
45:58
prices rise prices of business services
45:59
Rises you spend money faster you get
46:01
more than your cash balances of man
46:03
curve goes up as this happens as the
46:06
price level increases the gap disappears
46:09
go low moaner burns a hole in their
46:12
pocket because prices are now fine
46:13
enough so it doesn’t it just meets their
46:15
the aggregate desire to hold cash
46:17
balances time úrsula looking at it the
46:19
other way if the price level price of
46:22
money is too low if in other words the
46:24
price level is higher than equilibrium
46:26
say you had this kind of situation you
46:28
still have the two billion dollars worth
46:29
of gold but now prices are so darn high
46:33
you want more cash balance than you’ve
46:35
got rather than burning a hole in your
46:36
pocket you haven’t got enough money this
46:38
is a shortage of cash balances if
46:41
everybody feels a shortage of money
46:43
under century where everybody wants more
46:45
income but the sense of you want more
46:46
cash balance
46:47
you have available because prices are so
46:50
high people trying to get desperately
46:52
get more cash balances how do they do it
46:55
the amount of the cash balance is fixed
46:56
in the aggregate system and a goal can’t
46:58
be increased magic way or anything we
47:01
give them the same amount of gold but
47:03
you’re trying to do that you spend less
47:04
money on goods and services you hold on
47:06
to more of your income and keep it in
47:07
your cash balance in order to increase
47:09
your cash balances Nancy will restrict
47:11
their spending prices full and the
47:15
spices full the shortage of cash
47:17
balances no longer appeared why this
47:19
happen the public is able to lower
47:21
prices until they don’t want any more
47:24
cash balance so in other words if the
47:27
price of money is higher than
47:28
equilibrium that’s no worse the price
47:31
level is lower than equilibrium level
47:33
the goal will be burning a hole in
47:34
people’s pockets and I’ll spend it as
47:36
they spend it to trying to get rid of
47:37
cash balance they can’t get rid under
47:38
the aggregate what happens is this
47:41
action raises prices until they’re
47:43
satisfied whether they’ve got similarly
47:45
or conversely that the price level is
47:47
higher than equilibrium now hold on to
47:49
more than what are you trying to
47:50
increase their cash balances those
47:52
prices will fall til they’ve satisfied
47:55
what they’ve got there’s a tradition in
47:57
economics theory to just sneer and
48:00
deprecated people want to increase their
48:02
cash balances so cool orders Horning is
48:05
when somebody else then yourself one
48:08
thing creases apply a cash it’s supposed
48:10
to be terrible evil plan call the
48:11
depressions and all sorts of other
48:13
nonsense
48:13
actually all it’s doing is people are
48:15
holding on or more of their cash
48:17
balances that a man for money increases
48:19
then since the support money is remain
48:22
the same you can’t do anything about
48:24
that
48:24
then what’s simply gonna happen is that
48:26
the price level will fall until people
48:28
are happier in other words in real terms
48:31
in quotes correcting for price changes
48:33
you’re increasing the real cash balance
48:35
it certainly it seems to me that is
48:37
legitimate – one more hula-hoops or less
48:39
hula-hoops or want more
48:41
less eggs or whatever there’s legitimate
48:43
that seems more and invest more or say
48:44
less in restaurants it’s certainly this
48:46
is legitimate the warning feature cash
48:48
balance proportions and they have that
48:50
satisfied by the price is falling people
48:53
warm one reason or another want more
48:55
cash balances they’ve got this will be
48:57
satisfied by this cash balance with a
48:59
lot of prices will fall types of money
49:02
will go up this will satisfy their
49:03
desire for increased cash balances now
49:05
there’s a price level then is determine
49:08
at any given time by this vertical
49:10
supply line on the falling demand curve
49:12
what then changes it while two things
49:14
can change price levels of course change
49:16
all the time over the price of money
49:17
changes all the time
49:19
once then changes to factors and to only
49:21
either it’s because the supply of money
49:24
changes or because the demand for money
49:26
changed talking just before us now by
49:29
the mass money going up people want more
49:30
cash bound for whatever reason usually
49:32
there might be more miserly than before
49:34
whatever cuz imagine when he goes up
49:36
then the man curve will shift to the
49:39
right these are the old intersection
49:41
point with of course a fixed vertical
49:43
supply line these are the old
49:45
intersection point
49:46
mantasy before they were satisfied
49:48
before was a market clearing purchasing
49:51
power level but now because people want
49:53
more cash balances for one for whatever
49:55
reason so their marginal utility if
49:57
money is going up so now in this new
50:00
situation because of these new value
50:01
scales in the part of the people now we
50:03
have a shortage of cash balances
50:06
something emerged so that now we are not
50:08
satisfied you want more cash balances
50:10
people then spend less money you
50:12
restrict their purchases as they do that
50:14
the prices everything full that the
50:17
price falls you reach to the new
50:19
equilibrium point the new market
50:20
clearing point which is now higher
50:21
because the demand curve for money has
50:23
gone up a new higher equilibrium point
50:27
that means that the price of money is
50:28
now higher prices in general or lower
50:31
and people now have achieved their
50:32
desire to have higher proportion of cash
50:35
balances by the fact that prices are
50:36
formed because of their action
50:38
conversely people’s demand for cash
50:41
balances Falls for whatever race demand
50:43
curve attached for cash balances fools
50:46
and then the exact opposite happens this
50:48
means of the old equilibrium point we
50:51
now have all of a sudden the goal is
50:54
burning a hole in their pocket park at a
50:56
try to get rid of it we wind up again as
50:58
a new equilibrium point where there’s no
51:01
longer money burning a hole in my pocket
51:03
the proportion of cash balances to
51:06
everything else that’s fallen so now we
51:08
have situation we have the same area
51:10
supply of money but it’s doing less
51:11
money work you know lost cash balance
51:13
work because prices and general going
51:15
off it’s people have achieved their goal
51:17
of arriving at a lower proportion of
51:19
cash balances denote changes demand for
51:22
money if the demand for money goes up
51:24
then prices in general will fool though
51:28
it was the price of money only increase
51:29
of the price the price level will fold
51:31
and conversely if the demand money goes
51:36
down people want less than their cash
51:37
balances this will lead to the price
51:39
level going up now usually demand for
51:44
money this is really first an empirical
51:45
statement yeah now we going naturally
51:48
predicting absolute truth to a more sort
51:52
of a relative empirical kind of
51:53
statement usually people’s demand for
51:55
money doesn’t change very much
51:57
influenced by several why a lot of
51:59
institutional factors for example it’s
52:02
influenced by the frequency which people
52:03
get paid there’s something a simple
52:06
thing like lack and I’m very strongly
52:08
affected the desire how much you you
52:10
want to hold your cash balances I think
52:13
two people have the same income say that
52:14
kind of $12,000 a year and be with any
52:17
kind of 12,000 well the difference is
52:20
that a is paid once a month they get to
52:23
check a 1,000 the first of each month
52:24
say and B however gets paid twice a year
52:28
I used to be in a position
52:30
way back I was resisted getting paid
52:32
twice a year I was working for
52:33
foundation a Foundation grant and
52:36
believe you MIT was pretty rough because
52:37
you know my total pay the total annual
52:40
pay was comparable other people’s but if
52:42
you’re on a precise
52:45
your expenditures you spend the last
52:48
month of every half sort of perpetual
52:51
hawk having sex and whatever to like
52:54
fill abundantly July the furnace so
52:58
supposedly this mr. digas paid twice a
53:01
year did he get six thousand an you arey
53:04
first thing another six out of your life
53:06
first of the total income is a sink you
53:08
simply look at the income over the years
53:09
twelve out of our however let’s look at
53:12
their different average can’t balance
53:14
let’s assume in look neither these two
53:16
guys synchrony let’s assume also each
53:18
one spends at a smoothly uniform rate
53:20
certainly mat proportional fractional
53:22
amount per day before it’s unrealistic
53:24
any gives me gives the idea here he
53:28
starts off for the first amount of
53:29
thousand dollars by the end of the month
53:30
he’s got zero just ready to expire
53:32
before they get new knowledge checks his
53:35
cash balance on january the first will
53:37
be a thousand bucks is cash balance that
53:39
the last day of the month will be zero
53:41
so therefore his average cash balance
53:43
for the month will be $500 and same way
53:46
that with the rest of the month each
53:48
month mcdowell the yearly periods also
53:50
got a final cash balance so the average
53:53
cash balance mr. bean gets paid once a
53:55
month is firing on ours this is the
53:58
average amount that keeps his wallet or
54:00
whatever the other hand look at poor
54:02
being here he’s got he starts all the
54:05
six thousand dollars in his bank account
54:07
he winds up with zero and so for each
54:09
half year he’s got an average cash
54:10
balance of two thousand bucks so he’s
54:13
got an average cash balance for the year
54:14
three thousand bucks
54:16
poor be is really in bad shape cause he
54:18
has to keep we have to keep an average
54:19
cash balance of six hundred a mass of
54:21
mr. a so what happens for example a
54:26
frequency at which people are paying
54:28
institutionally shift which is what
54:30
happened sometime usually remains the
54:32
same for a long time and something
54:33
happens if people for example shift from
54:35
wage payment the salary payment I think
54:38
wage workers tend to get paid once a
54:40
week and salary workers they get paid
54:42
once a month and that’s the try
54:43
splitting a shift everybody fixing
54:45
blue-collar or their status something
54:47
shifts they said everybody’s dubbed the
54:48
white collar workers so you’re really a
54:50
big shot now Jim
54:51
you really white colored type and to
54:54
honor the king in Spanish there’s
54:56
something you ought to legal now pay
54:57
once a month in this situation he’s the
55:00
man for cash balances goes way up he’s
55:02
got a kick a lot more and so there’s a
55:05
general shift from weekly payment a
55:06
monthly payment for the man curve for
55:09
hash balancing go up I guess a good way
55:11
of looking inflation away price level
55:13
will then turn the fool hey people are
55:16
less often nobody pay people the same
55:18
amount if you pay them less often get
55:20
everybody to keep a higher cash balance
55:22
so there are things of that sort their
55:24
institutional matters of that sort plus
55:27
their value scales but it turns a bit
55:29
again apparently one of the big reasons
55:31
for shifts in the manner for money is
55:35
what’s going to happen the price level
55:36
money the manner for money is what’s
55:38
going to happen a price level money the
55:40
man for money is what’s going to happen
55:41
price level money the man for money is
55:44
what’s going to happen price level money
55:45
the man for money is what’s going to
55:47
happen price level money the man for
55:49
money is what’s going to happen the
55:51
price level money